You are asked to demonstrate your recently acquired skills in risk management in a business context. The project will also prepare you gradually for the final Risk Management hedging project.
Insights Capital.Insights Capital hires MBAs both for their expertise
and professionalism in communication with clients.Insights Capital was recently approached by
SmartOil to produce a fact-based short paper to understand
context and risk associated with Oil and Natural Gas in Canada.SmartOil is a consortium of senior executives with a
background in extracting industries and require this knowledge to better
understand the economics of monetizing resources after a molecule is
produced.Use of APIs for Enterprise workflow i.e. strictly no Excel, csv or use of other local files.
Data wrangling and parsing. You must use tidy data with long and wide data frames.
Choice of effective visualization in communication.
Data analytics and an ability to tell a story from it.
Foundational risk management skills.
Clean, clear and concise rendering of a business document. You may refer to the Rmarkdown cheatsheet or any other online document to customize your output. I reserve the right to award a maximum of 50% for any document not properly presented. Some characteristics of a properly presented document:
Each question should be answered as if you were presenting to a client: you would not show code to a client!
Learning to learn: Using new packages and functions as you see fit to achieve the desired outcome.
Whilst there are many packages to format tables the following are suggested:
You will use the following sources of data:
You will be using data from the US
Energy Information Administration and
Morningstar Commodities.
The RTL::fizdiffs randomized data sets of Crude oil
prices in key trading locations across North America:
Simplified NA Energy Infrastructure Maps
Rmarkdown or quarto, render into a
clean and concise html document.firstNameLastName.Rmd and send it to
pcote@ualberta.ca before the deadline.Grading module and any
late submission will be assigned a grade of 0% - no questions
asked.SmartOil needs context on the level and trends of
Canadian exports to the US since 2009-01-01.
Use the following data from the EIA to tell the
story.
The benchmark crude oil grade in Alberta is
Western Canadian Select ("WCS"). SmartOil
executives need factual information on the value of WCS a
producer may obtain by selling in Alberta or exporting to Houston. This
export additional value is then compared to the costs and risks of
taking on pipeline shipper commitments.
SmartOil is only concerned with economics from
2019-01-01 as the Government of Alberta introduced production curtailment legislation in 2018 limiting
downside risk.
Using the RTL::fizdiffs randomized dataset below,
prepare the following in your report:
SmartOil needs insights on the implications pertaining to a
potential negotiation on seeking a pipeline commitment instead of
selling WCS in Alberta.RTL::fizdiffs %>%
dplyr::transmute(date = date,
Alberta = WTI.CMA01 + WCS.HDY,
Houston = WTI.CMA01 + WCS.HOU)
## # A tibble: 1,691 × 3
## date Alberta Houston
## <date> <dbl> <dbl>
## 1 2017-01-03 37.8 45.3
## 2 2017-01-04 39.1 46.5
## 3 2017-01-05 39.7 47.1
## 4 2017-01-06 40.8 47.4
## 5 2017-01-09 39.0 45.2
## 6 2017-01-10 38.6 44.4
## 7 2017-01-11 39.8 45.7
## 8 2017-01-12 40.3 46.2
## 9 2017-01-13 39.8 45.6
## 10 2017-01-17 40.6 45.7
## # ℹ 1,681 more rows
SmartOil clients have at times to make decisions on
temporary storage and all they see in the financial news headlines is
the price of the WTI crude. As an additional example, you can find on
Marketwatch Crude Oil Continuous Contract the same
information on a different commercial data vendor. Hint: the first
example of how to extract these type of contracts from Morningstar is in
the tutorial on how to use Morningstar.
They are considering making decisions on storing from the 2nd to the 3rd contract month. You, as a specialist, know that there are futures contracts for different delivery months and using data from Morningstar from 2019-01-01 to 2024-01-31:
WCS crude in Alberta or Houston.mapply() as covered in class or purrr::pmap()
if you want to experiment. We will use the latter for more complex risk
management problems at a later stage.SmartOil often has to provide advice on matters of
financing terms. In this specific case, the client has the choice of
financing for:
The problem they have is that their usual decision-making process is of low quality: they have no idea as of today what the implied refinancing rate is and therefore engage in broad qualitative conversations around the future path of interest rates.
RTLedu::bankOffer
## # A tibble: 5 × 2
## maturity rate
## <dbl> <dbl>
## 1 1 0.0539
## 2 3 0.0489
## 3 5 0.0479
## 4 7 0.0486
## 5 10 0.0486